IFRS 8
Active
Operating Segments
Requires operating segment disclosures based on the management approach used internally by an entity.
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Conceptual Framework Linkage
Why segment reporting uses "the management approach"
The Conceptual Framework values information that helps users understand a business the way MANAGEMENT itself does. IFRS 8 adopts this "MANAGEMENT APPROACH" directly: segments are defined by how the entity is ACTUALLY organised and managed internally, not by an externally imposed classification scheme.
HOW IFRS 8 MAPS TO THE FRAMEWORK
Relevance – reporting segments the way management ACTUALLY monitors them gives users the SAME lens management uses to run the business Faithful representation – externally imposed, standardised segment categories risk distorting how the business is genuinely structured and managed Cost constraint – segment information is DERIVED from data management ALREADY produces internally
IFRS 8 replaced IAS 14's earlier "business/geographical segment" model specifically to align segment reporting more closely with how entities are ACTUALLY managed.
Measurement principles applied by IFRS 8
Unlike most IFRS Standards, IFRS 8 does NOT prescribe how segment items are measured – it requires reporting the SAME measures management ITSELF uses internally, even if those measures differ from IFRS.
Framework conceptIFRS 8's application
Measurement basisWHATEVER basis management uses internally – may differ from IFRS
Reconciliation requirementMandatory reconciliation of segment totals to consolidated IFRS totals
Permitting NON-IFRS internal measures, but requiring a mandatory reconciliation, balances relevance against comparability.
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Scope & Applicability
What IFRS 8 covers
IFRS 8 applies to the SEPARATE or INDIVIDUAL financial statements of an entity, and the CONSOLIDATED financial statements of a group with a parent, whose DEBT or EQUITY instruments are traded in a public market (or that FILES its financial statements with a regulatory organisation for the purpose of issuing such instruments).
Unlike most IFRS Standards, IFRS 8's scope is EXPLICITLY tied to PUBLIC ACCOUNTABILITY – private entities without publicly traded instruments are generally NOT required to apply IFRS 8.
Key definitions you must know
Operating segment
A component engaging in business activities generating revenues/expenses, whose results are REGULARLY REVIEWED by the CODM, with DISCRETE financial information available.
Chief operating decision maker (CODM)
A FUNCTION, not necessarily a job title – allocates resources to, and assesses performance of, operating segments.
Reportable segment
An operating segment (or aggregation) meeting one of the quantitative thresholds, or voluntarily reported.
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Identifying Operating Segments (with worked example)
The three-part definition, applied
A component is an operating segment ONLY if it meets ALL THREE conditions: (1) engages in business activities generating revenue/expenses; (2) results REGULARLY reviewed by the CODM; and (3) DISCRETE financial information is available.
Example 1: Identifying operating segments via internal reporting
A diversified group's CEO (the CODM) receives monthly reports broken into three divisions: Electronics, Textiles, and Logistics – each with discrete revenue/expense/profit figures. A fourth cost centre, "Corporate HQ," generates no revenue and is not reviewed for resource allocation.
Electronics, Textiles, and Logistics EACH qualify as operating segments. Corporate HQ does NOT (no revenue-generating activity, not assessed for resource allocation).
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Aggregation of Segments
Combining similar segments – a strict five-factor test
Two or more operating segments MAY be aggregated if consistent with IFRS 8's core principles, with SIMILAR ECONOMIC CHARACTERISTICS, and similar in EACH respect:
Nature of products and services Nature of the production processes Type or class of customer Methods used to distribute products/services Nature of the regulatory environment, if applicable
Aggregation is genuine JUDGEMENT, not mechanical calculation.
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The Quantitative Thresholds – 10% Tests (with worked example)
Reportable if it meets ANY ONE of three 10% tests
TestThreshold
Revenue testReported revenue (external + intersegment) is 10%+ of COMBINED revenue of all segments
Profit or loss testAbsolute profit/loss is 10%+ of the GREATER of combined profit of profit-making segments, combined loss of loss-making segments
Assets testSegment assets are 10%+ of combined assets of all segments
Example 2: Applying the profit/loss 10% test
4 segments: A ($800k profit), B ($600k profit) → combined profits $1,400,000. C ($300k loss), D ($900k loss) → combined losses $1,200,000.
Benchmark = GREATER of $1,400,000 and $1,200,000 = $1,400,000. 10% threshold = $140,000. Segment D's $900,000 loss exceeds this → REPORTABLE.
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The 75% Reporting Sufficiency Test (with worked example)
A backstop ensuring adequate overall coverage
If TOTAL EXTERNAL REVENUE reported by operating segments is LESS THAN 75% of total consolidated external revenue, ADDITIONAL segments must be added as reportable until 75% is reached.
Example 3: Applying the 75% test
Total external revenue $50,000,000. Segments meeting 10% thresholds account for $34,000,000 (68%).
68% is below 75% – additional segments must be added until at least $37,500,000 (75%) is captured.
Segments not separately reportable are combined in "ALL OTHER SEGMENTS," with revenue sources described.
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Measurement of Segment Information
Reported "the way management sees it" – including non-IFRS figures
Each segment item is measured as REPORTED TO THE CODM – this can be a NON-IFRS measure, provided the basis and any differences from consolidated totals are EXPLAINED.
Segment figures may NOT be directly comparable ACROSS different entities, even in the same industry.
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Reconciliations to Consolidated Totals
Bridging segment figures back to the consolidated financial statements
Reconciliations required: total segment revenues to entity revenue; total segment profit/loss to entity profit/loss before tax; total segment assets/liabilities to entity totals; and other material items.
These mandatory reconciliations make the management approach work alongside comparability.
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Entity-Wide Disclosures
Required regardless of segment structure – a final backstop
PRODUCTS/SERVICES & GEOGRAPHY
Revenue from external customers by product/service, even if segments organised differently Revenue attributed to country of domicile vs all foreign countries in total Non-current assets located in domicile vs foreign countries in total
MAJOR CUSTOMERS
If revenue from a SINGLE customer is 10%+ of total revenue, disclose that fact, the amount, and the segment(s) involved
These apply EVEN IF the entity has only ONE reportable segment.
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Critical Judgments & Estimates
Where management judgement matters most
SIGNIFICANT JUDGEMENTS
Identifying the CODM function correctly in complex structures Whether operating segments meet the five-factor aggregation criteria
SIGNIFICANT ESTIMATES
Allocating shared/corporate costs between segments Estimating revenue attributable to a customer's parent for concentration disclosure
Changes to internal reporting structures can trigger CHANGES in reportable segments year over year.
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IFRS vs US GAAP
Comparison – IFRS 8 vs US GAAP (ASC 280)
FeatureIFRS (IFRS 8)US GAAP
Management approachAdopted, modelled on US GAAPASC 280 was the ORIGINAL source
10% thresholds & 75% testSame mechanicsSame mechanics, converged
IFRS 8 and ASC 280 are among the MOST CONVERGED standards in IFRS/US GAAP.
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Statement Mapping
Disclosure-to-location mapping table
Disclosure itemLocationNotes
Segment revenue, profit/loss, assets, liabilitiesNotesMay use non-IFRS internal measures
Reconciliation to consolidated totalsNotesMandatory bridging disclosure
Entity-wide product/geography disclosuresNotesRequired regardless of segment structure
Major customer concentrationNotes10%+ of total revenue
IFRS 8 is entirely a DISCLOSURE standard – no effect on recognised SOFP/SOPL/OCI/Equity figures.
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Related Standards
Cross-reference map
StandardConnection
IAS 34Requires segment information in interim reports
IFRS 5Segments must be identified for held-for-sale/discontinued operations
IFRS 3Goodwill CGUs often align with, though not identical to, operating segments
IFRS 7Financial instrument risk disclosures may follow segment structure
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Quick-Reference Glossary
Management approach
Defining segments based on internal management structure, not an external classification.
All other segments
Residual category combining non-reportable operating segments.
Intersegment transactions
Transactions between segments within the same entity, included in the 10% revenue test.
Chief operating decision maker (CODM)
A function, not a job title, that allocates resources to and assesses performance of operating segments.
Reportable segment
An operating segment (or aggregation) meeting one of the quantitative thresholds, or voluntarily reported.
75% reporting sufficiency test
A backstop requiring that at least 75% of total consolidated external revenue be covered by reportable segments; otherwise additional segments must be added.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
Apr-2001
In April 2001 the International Accounting Standards Board (Board) adopted IAS 14 Segment Reporting, which had originally been issued by the International Accounting Standards Committee in August 1997.
Aug-1981
IAS 14 Segment Reporting replaced IAS 14 Reporting Financial Information by Segment, issued in August 1981.
Nov-2006
In November 2006 the Board issued IFRS 8 Operating Segments to replace IAS 14.
2007
IAS 1 Presentation of Financial Statements (as revised in 2007) amended the terminology used throughout the Standards, including IFRS 8.
Jun-2011
IAS 19 Employee Benefits
Minor consequential amendment to IFRS 8
Dec-2013
Annual Improvements to IFRSs 2010-2012 Cycle and Amendments to References to the Conceptual Framework in IFRS Standards
Minor consequential amendment to IFRS 8
Feb-2021
Disclosure of Accounting Policies and IFRS 18 Presentation and Disclosure in Financial Statements
Minor consequential amendment to IFRS 8